Press Release

Keimed Private Limited

January 07, 2025

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

345.00 CARE A Continues to be on Rating Watch with Developing

Long-term bank facilities
(Enhanced from 237.82) (RWD) Implications
Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

CARE Ratings Limited (CARE Ratings) continues to place the rating of bank facilities of Keimed Private Limited (KPL) on ‘Rating
watch with developing implications’. The rating was placed under watch in May 2024, following Apollo Hospitals Enterprise
Limited’s (AHEL’s) announcement on April 26, 2024, of proposed scheme of amalgamation for merging KPL with Apollo Healthco
Limited (AHL, a subsidiary of AHEL), with the latter as the surviving entity. The rating continues to be on watch given the receipt
of approval from the Competition Commission of India (CCI) on August 20, 2024; however, approval from National Company Law
Tribunal (NCLT) is pending. The merger process is expected to complete in 15 months from the date of receipt of first tranche of
investment from Advent International (AI), a global private equity (PE) firm. First tranche proceeds were received on September
27, 2024. Post merger, KPL shall cease to exist and AHL shall be the surviving entity. The milestone of internal restructuring of
KPL, through “execution of scheme of arrangement” involving amalgamation of various subsidiaries was achieved in July 2024.

However, there is limited clarity on AHL management’s plan on investment in digital business and expansion and timeline to
turnaround the digital business. CARE Ratings will continue to monitor the developments pertaining to the merger and assess its
impact to resolve the watch.

Per the proforma combined financials available on public domain (AHEL’s publication on BSE), the revenue for FY24 stood at
₹13,770 crore with earnings before interest, taxation, depreciation, and amortisation (EBIDTA) of ₹253 crore. In H1FY25, the
performance of combined entity improved with total operating income (TOI) of ₹7,896 crore (annualised growth of ~15%)
compared to FY24.

The rating assigned to bank facilities of KPL continues to derive strength from its significant size and established position as a
leading wholesale distributor of pharmaceutical products, as result of its consolidated distribution network through the acquisition
of regional players in a similar line of business, which provides it a competitive advantage over its peers, and supply arrangements
with the Apollo group of companies, Apollo Hospitals Enterprise Limited (AHEL) and Apollo Healthco Limited (AHL), which
contributed close to 54% of KPL’s consolidated revenue. The rating also derives strength from improved financial profile, marked
by growth in the TOI and operating profit in FY24 (Audited) at the consolidated level (FY refers to April 01 to March 31),
comfortable operating cycle, and adequate liquidity position. The rating also factors in the experienced promoters and
management team, group's expansion through the acquisition of new entities and addition of branches in existing entities in the
last fiscal year, FY24 and H1FY25, completion of internal restructuring of the Keimed Group, and improved financial performance
in H1FY25 at a consolidated level.

The above strengths are offset by the decline in net profit in FY24, led by an increase in interest expenses due to higher working
capital borrowings, moderation in profitability margins, deterioration in the capital structure and debt coverage indicators, and
the high competition from organised and unorganised players. As on September 30, 2024, debt levels continue to remain at
elevated levels.

Rating sensitivities: Factors likely to lead to rating actions

Positive factors
• Improvement in profit before interest, lease rentals, depreciation, and taxation (PBILDT) margins over 4% on a sustained
basis.
• Improvement in the working capital turnover ratio above 6.5x on a sustained basis.

Negative factors
• Any un-envisaged aggressive debt-funded acquisition/capex with subsequent impact on the financial and liquidity profile.

Analytical approach: Consolidated.

CARE Ratings, in its analysis, has considered the consolidated business and financial risk profiles of KPL and its 42 wholly owned
subsidiaries, which are all engaged in the same business activity of distributing pharmaceutical products across India, and thus,
have strong management, financial, and operational linkages. The list of companies consolidated is attached as Annexure-6.

Outlook: Not applicable

1
Complete definition of ratings assigned are available at www.careedge.in and other CARE Ratings Limited’s publications.

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Detailed description of key rating drivers:

Key strengths

Proposed merger with AHL

On April 26, 2024, AHEL (parent of AHL) announced a proposed scheme of amalgamation for the merger of KPL with its subsidiary
company, AHL. AHL houses the pharmacy distribution business with exclusive supply arrangement with Apollo Pharmacies Ltd,
retail pharmacy chain of the group, and operates omni channel digital healthcare platform, Apollo24x7. The overall transaction is
expected to conclude over next 24-30 months from the date of announcement of scheme of amalgamation subject to receipt of
all relevant shareholder and regulatory approvals. Company has received approval from the CCI on August 20, 2024. As part of
the proposed merger, AHL proposes to raise equity capital of ₹2,475 crore (USD 300 million) from AI. The same was proposed to
be infused in two tranches, tranche 1 investment of ₹1,732 crore and tranche 2 investment of ₹743 crore.

As on September 27, 2024, AHL has received ₹1,732 crore from AI in tranche 1 of which ₹890 crore was paid to AHEL against
₹1,290 crore payable for business acquired by AHL from AHEL in March 2022, and ₹125 crore was paid to promoters of KPL for
acquiring 1.96% stake in KPL. The balance ₹718 crore is maintained for working capital in AHL. The tranche 2 investment of ₹743
crore is scheduled post 12 months of Tranche 1. Post completion of Tranche 2, AHL shall acquire 7.7% in KPL from promoters of
KPL for ₹500 crore. Additionally, AHL shall subscribe to equity shares of KPL of ~1.54% for ₹100 crore to finally hold 11.2% share
in KPL. Post merger, AI will acquire a total of 12.1% stake in AHL (merged entity), while AHEL will hold minimum 59.2% and
KPL’s promoters will hold maximum 25.7%. The merged entity will be an integrated pharmacy distribution setup with large
network of retail presence pan India and a growing omni channel digital health business. With an end-to-end supply chain
capabilities and broader channel for private label push, the company is expecting to demonstrate sustained and stronger growth.

Performance of combined entity (KPL + AHL) in FY24 and H1FY25

Per the proforma combined financials available on public domain (AHELs publication on BSE), the revenue for FY24 stood at
₹13,770 crore with an EBIDTA of ₹253 crore. In H1FY25, the performance of combined entity improved with TOI of ₹7,896 crore
(annualised growth of ~15%) compared to FY24. The loss reported in online pharma distribution business of AHL reduced in
H1FY25 leading to a combined EBIDTA of ₹258 crore (annualised growth of ~104%). AHLs online business reported loss of ₹619
crore in FY24 and the same stood at ₹250 crore in H1FY25.

Moderate growth in scale of operations in FY24, however, margins remain subdued

At the consolidated level, KPL achieved topline of ₹10,585 crore in FY24, growth of 14%. Increase in revenue is considering
increase in share of sales to Apollo group and acquisition of companies resulting in increased customer base. At the standalone
level as well, the company reported topline of ₹1,702.97 crore in FY24 against ₹1,179.19 crore in FY23 (growth of ~44%).

Due to the trading nature of the business, PBILDT margins remained thin in the range of 3.5% - 3.8% in FY20 – FY24. For FY24,
PBILDT margin stood at 3.27% compared to 3.58% in FY23. However, at the absolute level, PBILDT improved to ₹346 crore in
FY23 (PY: ₹333 crore) due to improvement in scale of operations.

Significant size and established position in wholesale pharma distribution

The existence of strong national and regional trade lobbies such as the Indian Retail Druggists and Chemists Association and
other Regional Distributors’ Association makes it difficult for pharma manufacturers to sell directly to customers and small retailers.
Simultaneously, it makes it difficult for a new distributor to scale up rapidly without opting for the acquisition of existing regional
players. In this regard, the company’s first-mover advantage in acquiring large regional players to scale up nationally has enhanced
its bargaining power with drug manufacturers. As part of the company’s growth strategy, KPL acquired complete ownership in
one company in FY24 and three companies in H1FY25. The group also opened four new branches strengthening its position in
their respective sectors.

Strong track record of KPL

Incorporated in 2000, KPL has been engaged in distributing medical, surgical, and other hospital-related materials such as drugs,
chemicals, surgical disposables, instruments, and equipment to government and private hospitals and retail pharmacies for nearly
two decades. Over the years, KPL has significantly increased its scale of operations by acquiring majority stakes in several regional
players and expanded its presence across the country. KPL distributes products of well-known companies in India, including Sun
Pharmaceutical Industries Limited, Cipla Pharmaceuticals Limited, Abbott Healthcare Private Limited, Aventis Pharma Limited, Dr
Reddy’s Laboratories, Intas Pharmaceutical Limited, and GlaxoSmithKline Pharmaceuticals Limited, among others. The same has
enabled the company to continuously expand its size and scale of operations over the years.

Largest wholesale trader of pharmaceutical products with diversified geographical presence

The group has a substantial network of over 40 partners, serving an active retail customer base of 70,000, and 45,000 stock
keeping units (SKUs) spread across the country. These retail stores are strategically placed in key commercial areas, enhancing
the group’s brand visibility nationwide. The group maintains a warehouse capacity of nearly 6 lakh square feet (lsf), equipped
with cold storage capabilities. It has also established an in-house Information Technology (IT) infrastructure that caters to the
operational requirements of all its entities. CARE Ratings observes, the expanding scale of operations is expected to maintain with
acquisitions taking place based on opportunities.

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Preferred partner of Apollo Hospitals, despite moderate customer concentration risk

KPL holds the position of the preferred pharmaceutical supplier for AHEL. This preference is reinforced by the fact that Shobana
Kamineni, a promoter of KPL, also serves as the Executive Vice Chairperson of AHEL. Consequently, AHEL and its related entities
have emerged as a significant client for KPL, contributing 54% to the group’s revenue in FY24 (~49% in FY23) on a consolidated
basis. In the last few years, KPL has followed an aggressive inorganic growth strategy by acquiring majority stakes in several
regional pharma distribution players across India. This, and the supply arrangement with AHEL, has resulted in the growing scale
of operations of the company. AHEL’s strong credit profile acts as a mitigating factor for KPL’s customer concentration risk.

Satisfactory operating cycle

Keimed has a satisfactory operating cycle despite its operation in working capital intensive business. Given the company’s presence
in wholesale industry, the company has to maintain relatively large stock of pharmaceutical products to cater to various retail
businesses. Nevertheless, the operating cycle has remained stable though marginally deteriorated to 63 days in FY24, compared
to 54 days in FY23. Despite the increase in scale of operations, the company has maintained satisfactory collection and inventory
levels – at 47 days and 32 days, respectively, in FY24.

Experienced promoter group and strong management team

The company’s promoters have been in the pharmaceutical industry for over three decades. The group is headed by Shobana
Kamineni, who is a member of the founder family of the Apollo group and daughter of Dr. Prathap C Reddy, Founder & Chairman
of Apollo Hospitals. She has been associated with the Apollo group since 1982 and also spearheads the Apollo Pharmacy division.
The company’s business operations have benefited from her long-established track record in the business and the vast industry
network developed over the years. She is well supported by a team of experienced professionals, having considerable experience
in the segment, to look after the day-to-day operations.

Favourable industry outlook

The Indian pharma sector ranks third globally in terms of volume and fourteenth globally in terms of value. By 2030, the Indian
pharm industry is anticipated to grow at a compounded annual growth rate (CAGR) of 9–11% and reach US$130 billion. A growth
in the frequency of chronic diseases, increased per capita income, better access to healthcare facilities, and the penetration of
health insurance are all factors that have benefited the domestic pharma business. Modern pharma retail has witnessed robust
development, owing mostly to increased demand for OTC and prescription drugs, wellness items, and private label products.
However, pharma retail outlets also sell a variety of fast moving consumer goods (FMCG) items, consumables, and medical
equipment in addition to pharma and related services. Due to a sedentary lifestyle, there is a rising tendency of diseases caused
by lifestyle, with one of the greatest proportions of diabetic patients reported in India. Obesity and disorders associated with it
are becoming more and more common. These trends are causing the customer’s medical demands to change, which might make
that category the largest.

Key weaknesses

Low profitability margins with moderation in FY24

Owing to the trading nature of operations, the PBILDT margin at the consolidated level stood low at 3.27% in FY24 against 3.38%
in FY23. The PBILDT margin remained stable despite marginal decline as the cost of traded goods sold grew in proportion to the
improvement in the TOI. The gross cash accruals (GCA) remained at a comfortable level which stood at ₹167 crore in FY24 (PY:
₹170 crore).

However, in H1FY25, the group’s margins improved with operating margin at 3.41% and profit after tax (PAT) margin at 1.34%.
The group was able to achieve slightly higher margins through economies of scale.

Leveraged capital structure and moderation in debt coverage indicators

On consolidated basis, total debt has increased from ₹1,413 crore as on March 31, 2023, to ₹1,797 crore as on March 31, 2024,
due to increase in working capital utilisation to support the scale of operations. Working capital requirements for the newly
acquired companies tend to be on a higher side initially resulting in higher working capital (WC) requirements. This, coupled with
change in credit terms extended by KPL to its customers resulted in increased borrowings. In FY24, KPL extended a credit period
of 45-60 days against maximum of 30 days extended till FY23 resulting in higher outstanding as on March 31, 2024. With increase
in the total debt, overall gearing has marginally deteriorated to 2.45x as on March 31, 2024 (PYE: 2.34x) despite accretion of
profits to the net worth.

As on September 30, 2024, working capital borrowings continue to remain on a higher side at ₹1,694 crore (₹1,580 crore as on
March 31, 2024). However, with higher profit reported in H1FY25, overall gearing marginally improved to 2.34x as on September
30, 2024.

Presence in highly fragmented and competitive nature of industry

The company is engaged in trading pharmaceutical products, which is highly fragmented in nature, due to presence of both
organised and unorganised players in the industry. Potential risk arising out of new competition owing to differentiated products
and new entrants of varying sizes and store formats operating in unexplored semi-urban and rural markets. Nevertheless, Keimed

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group is one of the largest pharma traders in the country having strong presence with over 40,000 stores spread across parts of
India. However, competition from unorganised players continues to exist to some extent.

Liquidity: Adequate
The liquidity profile of the group is marked adequate by GCA of ₹167 crore in FY24 against the term debt obligations of ₹37 crore
in FY24. At the group level, the free cash and bank balance stands at ₹62 crore as on March 31, 2024. The working capital
utilisation for the past 12 months ending September 2024 stood at 82%.

Assumptions/Covenants: Not applicable

Environment, social, and governance (ESG) risks: Not applicable

Applicable criteria
Definition of Default
Consolidation
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Rating Watch
Financial Ratios – Non financial Sector
Wholesale Trading

About the company and industry

Industry classification
Macroeconomic indicator Sector Industry Basic industry
Services Services Commercial services & supplies Trading & distributors

KPL, promoted by the Kamineni family, was incorporated in March 2000 in Hyderabad, Telangana. The company is currently
engaged in wholesale trading of pharmaceutical products for a wide range of medical goods and consumables, drugs, surgical,
health, and personal care products, through its branches across India. KPL has 42 wholly owned subsidiaries as on March 31,
2024. The Keimed group has 44 network partners with 70,000 active retail store customers and 45,000 SKUs, spread across the
country. The group also has a warehouse space of 6 lsf with cold storage facilities and in-house IT infrastructure to take care of
its operational needs, which has been implemented across all the entities of the Keimed group.

The promoter group (Kamineni family) holds an equity shareholding of 71.98% in KPL, followed by Family Health Plan Insurance
TPA Limited, which is an associate company of AHEL, having shareholding of 16.49%. AHEL holds 49% in Family Health Plan
Insurance TPA Limited, and the balance is held by the promoters’ group.

Brief Financials (₹ crore) March 31, 2023 (A) March 31, 2024 (A) H1FY25 (UA)
Total operating income 9311 10585 6354
PBILDT 333 346 217
PAT 141 117 85
Overall gearing (times) 2.34 2.45 2.34
Interest coverage (times) 3.63 2.62 2.89
A: Audited UA: Unaudited; Note: these are latest available financial results

Keimed Private Limited – Standalone

Brief Financials (₹ crore) March 31, 2023 (A) March 31, 2024 (A)
Total operating income 1,179 1,703
PBILDT 64 64
PAT 4 79
Overall gearing (times) 0.52 0.58
Interest coverage (times) 3.65 2.75
A: Audited; Note: these are latest available financial results

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years: Annexure-2

Detailed explanation of covenants of rated instrument / facility: Annexure-3

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Complexity level of instruments rated: Annexure-4

Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Date of
Coupon Maturity Size of the
Name of the Issuance Rating Assigned and
ISIN Rate Date (DD- Issue
Instrument (DD-MM- Rating Outlook
(%) MM-YYYY) (₹ crore)
YYYY)
Fund-based - LT-Cash Credit - - - 235.00 CARE A (RWD)

Fund-based - LT-Term Loan - - 31/07/2027 110.00 CARE A (RWD)

Annexure-2: Rating history for last three years

Current Ratings Rating History

Date(s) Date(s) Date(s) Date(s)

Name of the
Sr. and and and and
Instrument/Bank Amount
No. Rating(s) Rating(s) Rating(s) Rating(s)
Facilities Type Outstanding Rating
assigned assigned assigned assigned
(₹ crore)
in 2024- in 2023- in 2022- in 2021-
2025 2024 2023 2022
1)CARE A;
Stable
1)CARE A 1)CARE A; 1)CARE A; (17-Dec-21)
Fund-based - LT- CARE A
1 LT 110.00 (RWD) Stable Stable
Term Loan (RWD)
(08-May-24) (06-Nov-23) (07-Oct-22) 2)CARE A;
Stable
(05-Oct-21)
1)CARE A;
Stable
1)CARE A 1)CARE A; 1)CARE A; (17-Dec-21)
Fund-based - LT- CARE A
2 LT 235.00 (RWD) Stable Stable
Cash Credit (RWD)
(08-May-24) (06-Nov-23) (07-Oct-22) 2)CARE A;
Stable
(05-Oct-21)
LT: Long term

Annexure-3: Detailed explanation of covenants of rated instruments/facilities : Not applicable

Annexure-4: Complexity level of instruments rated

Sr. No. Name of the Instrument Complexity Level

1 Fund-based - LT-Cash Credit Simple

2 Fund-based - LT-Term Loan Simple

Annexure-5: Lender details

To view lender-wise details of bank facilities please click here

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Annexure-6: List of entities consolidated

Sr Extent of Rationale for

Name of the entity
No consolidation consolidation
1 Sanjeevani Pharma Distributors Private Limited Full Wholly owned subsidiary
2 Palepu Pharma Distributors Private Limited Full Wholly owned subsidiary
3 Medihauxe International India Private Limited Full Wholly owned subsidiary
4 ShanBalaji Pharma Distributors Private Limited Full Wholly owned subsidiary
5 Shree Amman Pharma India Private Limited Full Wholly owned subsidiary
6 Focus Medisales Private Limited Full Wholly owned subsidiary
7 Srinivasa Medisales Private Limited Full Wholly owned subsidiary
8 Medihauxe Healthcare Private Limited Full Wholly owned subsidiary
9 Vardhman Medisales Private Limited Full Wholly owned subsidiary
10 Kamal Distributors Private Limited Full Wholly owned subsidiary
11 Meher Lifecare Private Limited Full Wholly owned subsidiary
12 Neelkanth Pharma Logistics Private Limited Full Wholly owned subsidiary
13 Lucky Pharma Logistics Private Limited Full Wholly owned subsidiary
14 Lifeline Pharma Distributors Private Limited Full Wholly owned subsidiary
15 Singlamedicos Pharma Solutions Private Limited Full Wholly owned subsidiary
16 Dhruvi Healthcare Private Limited Full Wholly owned subsidiary
17 Vasu Vaccines & Speciality Drugs Hyd Private Limited Full Wholly owned subsidiary
18 Vasu Agencies Drugs Private Limited Full Wholly owned subsidiary
19 Vasu Pharma Drugs Private Limited Full Wholly owned subsidiary
20 Venkatasai Agencies Drugs Private Limited Full Wholly owned subsidiary
21 Medihauxe Pharmaceuticals Private Limited Full Wholly owned subsidiary
22 Adeline Pharmaceuticals Private Limited Full Wholly owned subsidiary
23 ATC Medicare Private Limited Full Wholly owned subsidiary
24 Auspharma Private Limited Full Wholly owned subsidiary
25 Sri Venkateswara Galaxy Medical Distributors Private Limited Full Wholly owned subsidiary
26 Shivanitin Agencies Private Limited Full Wholly owned subsidiary
27 Guninaa Pharmaceuticals Private Limited Full Wholly owned subsidiary
28 LPH Pharma Private Limited Full Wholly owned subsidiary
29 Yogiram Distributors Private Limited Full Wholly owned subsidiary
30 New Welcome Agencies Private Limited Full Wholly owned subsidiary
31 New Amar Pharmaceuticals Private Limited Full Wholly owned subsidiary
32 SSND Medimart Private Limited Full Wholly owned subsidiary
33 Chandrasekhara Pharma Private Limited Full Wholly owned subsidiary
34 Levikas Enterprises Private Limited Full Wholly owned subsidiary
35 Tirath Singh & Bros (Agencies) Private Limited Full Wholly owned subsidiary
36 Anila Medical Private Limited Full Wholly owned subsidiary
37 Yashvi Pharma Private Limited Full Wholly owned subsidiary
38 Balaji Trade Pharma Private Limited Full Wholly owned subsidiary
39 Lakshmi Annapurna Medical Distributors Private Limited Full Wholly owned subsidiary
40 Poornima Medical Agencies Private Limited Full Wholly owned subsidiary
41 Srinivasa Pharma Distributors Private Limited Full Wholly owned subsidiary
42 Sreekara Medicine House Private Limited Full Wholly owned subsidiary

Note on complexity levels of rated instruments: CARE Ratings has classified instruments rated by it based on complexity.
Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for clarifications.

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E-mail: mradul.mishra@careedge.in E-mail: karthik.raj@careedge.in

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E-mail: saikat.roy@careedge.in Ramadevi Kamireddi
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CARE Ratings Limited
E-mail: Ramadevi.K@careedge.in

About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.

Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.

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